Democrats unveiled two new tax proposals on Tuesday that target billionaires and America’s 200 most profitable companies in an attempt to fund President Biden’s Build Back Better economic agenda.
One measure, unveiled by Sens. Elizabeth Warren (D-MA), Ron Wyden (D-OR) and Angus King (I-ME), would establish a 15% corporate minimum tax on business entities that report over a billion dollars in profits to shareholders. The proposal is designed to combat tax avoidance; companies often report one profit total to investors and then use complex accounting practices to minimize the profit they report to the Internal Revenue Service.
Approximately 200 companies would be impacted and Sen. King estimated the minimum tax would raise $300 billion to $400 billion over a decade.
The Financial Times reports:
Senators Warren, King and Wyden said their plan was designed to prevent America’s largest corporations from avoiding paying federal taxes. The senators cited the example of Amazon, which despite reporting $45bn in profits over the past three years paid an effective tax rate on its profits of 4.3 per cent — compared to the current corporate tax rate of 21 per cent.
Crucially, Sen. Kyrsten Sinema (D-AZ) expressed support for the plan, calling it a “common sense step toward ensuring that highly profitable corporations — which sometimes can avoid the current corporate tax rate — pay a reasonable minimum corporate tax on their profits.” Sinema’s opposition to other tax increases have stymied Democratic efforts to fund social spending, including massive investments in childcare, healthcare, and climate resiliency.
Earlier this week, the other Democrat holding up Biden’s agenda, West Virginia Senator Joe Manchin, told reporters “I’m open to any type of thing that makes people pay that’s not paying now.”
The separate tax on billionaires would impact 700 individuals, according to Bloomberg. Many of America’s largest private fortunes are held in stocks and bonds. Under the current law, those assets cannot be taxed until they’re sold; that’s why so many executives prefer stock options as opposed to traditional salaries. The new Democratic proposal seeks to upend that advantage.
The New York Times reports:
Under the plan, Congress would impose a one-time tax on all the gains in value of tradable assets held by billionaires from the time they were initially purchased. That first hit would be huge, since men like Mark Zuckerberg of Facebook, Elon Musk of Tesla and Jeff Bezos of Amazon sit on vast shares of the companies they created, which initially had a value of zero.
After that, anyone with $1 billion in assets or who received $100 million in earnings for three consecutive years would face an annual tax on the gains in value of their publicly traded assets, whether or not they were sold.
“I’ve been talking about this for years,” Warren said. “I’ve even made billionaires cry over this.”
The Associated Press adds:
Taken together, the new tax on billionaires and the 15% corporate minimum tax are designed to fulfill Biden’s desire for the wealthy and big business to pay their “fair share.” They also fit his promise that no new taxes hit those earning less than $400,000 a year, or $450,000 for couples. Biden insists all the new spending will be fully paid for and not piled onto the national debt.
Still, the proposals will likely run into roadblocks – even from within the Democratic party. More from The Times:
“Do I like the politics of it? Yeah, I think it’s sensible,” Representative Richard E. Neal of Massachusetts, the chairman of the House Ways and Means Committee, said. “I think the implementation for the plan could be a bit more challenging.”
The problem may be in the Constitution, which gives Congress broad powers to impose taxes, but says “direct taxes” — a term without clear definition — should be apportioned among the states so that each state’s residents pay a share equal to the share of the state’s population.
But the constitutionality of the proposal won’t be settled until it becomes law – and Democrats seem willing to put the decision before the Supreme Court. If the Supreme Court ultimately strikes down the new taxes, the social spending proposals associated with Biden’s agenda will still be in effect and lawmakers will have an opportunity to create new revenue sources.
A deal on the bill that encompasses both the new social spending and the new tax increases is closer than ever before.
“I think that we’re close, and I hope we’ll have a deal by the end of the day,” Senator Chris Murphy (D-CT) told CNN on Wednesday morning.
